VZCZCXRO2352
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0047/01 0081538
ZNR UUUUU ZZH
P 081538Z JAN 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 1149
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 000047 
 
SIPDIS 
SENSITIVE 
 
TAGS: EINV EPET ENRG IZ
 
SUBJECT:  IRAQI REFINERIES PRESENT AND FUTURE (CORRECTED COPY) 
 
¶1. (SBU) Summary:  Iraq's refineries are plagued by 
poor maintenance and antiquated design.  Modern refineries produce 
80% to 90% of a barrel of oil into light or medium distillates, 
while Iraq's refineries produce between 50% and 55%.  This creates 
large amounts of heavy fuel oil (HFO), which must be sold and 
transported within the country or exported.  Plans to modernize and 
expand Iraq's refineries are moving slowly mostly due to difficult 
contracting procedures, a shortage of skilled staff to manage large 
projects, and are exacerbated by lack of reliable electric power to 
safely operate high tech process equipment.  The Ministry of Oil 
(MoO) faces an uphill climb to meet its goals of self-sufficiency 
and higher exports.  End Summary 
 
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Iraqi Refineries: Three Operating Companies 
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¶2. (SBU) Iraqi refining capacity is divided into three operating 
companies.  The North Refinery Company headquartered in the Baiji 
Oil Refinery (BOR) is led by Director General (DG) Dr. Ali 
Al-Obaidi.  The Midland Refinery Company is headquartered in the 
Daura Refinery and led by DG Dathar Khashab.  The South Refinery 
Company is headquartered in the Basrah Refinery and led by DG Thaer 
¶E. Jaber.  All of these companies fall under the Deputy Minister of 
Oil for Midstream, Ahmad Al-Shamma. 
 
¶3. (SBU) Iraq's design refining capacity within country stands at 
approximately 740,000 barrels per day (bpd).  BOR accounts for more 
than 40% of this design capacity at 310,000 bpd.  The other two 
large refineries are Daura refinery with a capacity of 90,000 bpd 
and Basrah refinery at 160,000 bpd.  The remaining refineries range 
from 30,000 to 10,000 bpd capacity 
 
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Design versus Operational Capacity 
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¶4. (SBU) The difference between design capacity and operational 
capacity can be great.  BOR has an operational capacity 
approximately 75% of the design capacity.  Basrah Refinery's 
operational capacity is approximately 15% less than its design 
capacity.  This stems primarily from the MoO's inability to bring in 
spare parts for maintenance, damage caused by unreliable electricity 
supplies, long-term effects of the sanctions period, and a shortage 
of highly skilled workers.  Total Operational capacity is 
approximately 65,000 bpd, or 10% lower than design capacity. 
 
¶5. (SBU) In addition to the condition of the refinery, inadequate 
supplies of oil reduce production.  The Daura refinery regularly 
operates at approximately 50% capacity due to inadequate supplies of 
crude oil.  The Strategic Pipeline can no longer fully fuel all the 
users along the route.  Repairs to the pipeline's pump stations have 
not progressed and the problem will remain for a number of years to 
come.  Iraq loses approximately 116,000 bpd, or 17% of operational 
capacity, due to inadequate quantities of crude oil reaching the 
refineries.  Many days, no crude at all is received. 
 
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Refineries Lack Modern Technology 
--------------------------------- 
¶6. (SBU) Iraq's refineries are mainly simple distilling units.  Iraq 
has only one hydrocracker at BOR, which has not been operational 
since 2002.  Hydrocrackers allow a refinery to further break down 
complex carbon molecules and produce more light and medium 
distillates.  Most modern refineries have hydrocracker units.  The 
unit will typically increase production of lighter distillates from 
approximately 50% to approximately 70% of each barrel of crude oil. 
 
 
¶7. (SBU) Most modern refineries have a Fluid Catalytic Cracking 
Q7. (SBU) Most modern refineries have a Fluid Catalytic Cracking 
(FCC) unit.  The FCC unit has much the same function as the 
hydrocracker, but adds an extra layer of ability to the refinery. 
With a hydrocracker and FCC, a refinery can refine 80% to 90% of 
crude oil into lighter distillates.  The MoO has begun the tender 
process to put bids out for FCC units at the Baiji, Daura, and 
Basrah refineries, but these are in the earliest of stages and will 
not be completed until 2016. 
 
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HFO Issues: Urgent Need for Refinery Capacity 
--------------------------------------------- 
¶8. (SBU) There is an urgent need for the MoO to address its 
inability to process HFO through further refining.  Currently the 
MoO exports to Iran, Turkey, Syria, and Jordan via truck, sells 
domestically at subsidized and un-subsidized prices transporting the 
HFO via truck, and fuels electricity generation via truck and 
pipeline.  HFO, a heavier distillate, does not move easily via 
pipelines and does not store readily in tanks.  A truck which has 
transported HFO needs to be thoroughly cleaned before transporting 
lighter distillates to avoid contamination.  All of these issues 
strain the system and create build-ups of HFO at some refineries, 
such as the BOR.  In the past, refineries have even shut down due to 
the strain of excess HFO storage and over-production. 
 
 
BAGHDAD 00000047  002 OF 002 
 
 
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The Future of Iraqi Refineries: U.S. and International 
Firms Help, But it Will Take Time 
--------------------------------------------- --------- 
¶9. (SBU) In early December 2008, Iraq signed Front End Engineering 
and Design (FEED) contracts for four new refineries.  Two for 
150,000 bpd refineries in Kirkuk and Maysan were awarded to the U.S. 
firm, Shaw, Stone and Webster; one for a 300,000 bpd refinery in 
Nassariyah to the U.S. firm Foster Wheeler; and one for a 140,000 
bpd refinery in Karbala to the French firm Technip.  These contracts 
represent the earliest preliminary design portions of the refinery 
building process.  The companies are not likely to bring personnel 
to Iraq to conduct the work.  MoO officials report that the 
contracts will take at least 18 months to complete and the 
refineries will not be completed for five-to-seven years.  It is 
currently unclear whether these designs will include FCC units and 
hydrocracker units. 
 
¶10. (SBU) The Midland Refining Company is currently building two new 
refining units in the Daura refinery of 70,000 bpd each.  One 70,000 
bpd unit should be completed first quarter 2009 and the second early 
in 2010.  The DG anticipates moving some the 10,000 bpd units from 
Daura to smaller refineries and having Daura's capacity at 210,000 
bpd by the end of 2010.  The Basrah refinery plans to add an 
additional 70,000 bpd unit by 2010 and move its 10,000 bpd unit. 
This will raise Basrah's design capacity to approximately 210,000 
bpd.  All three of these 70,000 bpd units are being designed and 
built by Technoexport out of the Czech Republic.  These additions 
and the new refineries under the FEED contracts will approximately 
double Iraq's refining capacity. 
 
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Budget Woes 
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¶11. (SBU) Recently the Kuwaitis contracted to build a 600,000 bpd 
refinery with a reported price of over $15 billion.  Extrapolating 
that price for the Iraqi refineries would mean approximately $8 
billion for the 300,000 bpd refinery and $4 billion for the two 
150,000 bpd refineries and the 140,000 bpd refinery.  It is unclear 
whether the Iraqis can afford $20 billion over the next 
five-to-seven years from their oil revenue based budget even if oil 
prices climb again, given the many other desperate needs in Iraq. 
Ministry officials stated that they are looking for partners to 
build the refineries.  The officials have said that the only serious 
offer they have received so far has been one on the Kirkuk refinery 
but they hope for more bids as the projects are readied. 
CROCKER